Determining Value of a Business
Determining value of a business is a complicate task which can only be done by a professional who understands all the influences and criteria which affect the value.
Firstly the business needs to have its profit assessed. The profit needs to be determined on the most appropriate basis for the particular indistry and the size of the business in question. For example is the profit based on pre tax basis or post tax?
Is it based on an under management or owner driven profit or on a couple owning and running it. Is it NPAT, EBIT, EBITDA, PEBITDA or some other basis of profit calculation?
Clearly the basis for determining the profit for a business with 1000 employees will be different to that of a road house owned in the outback by a husband and wife!
Determining value of a business is also based on the profit then being capitalised at a rate appropriate to the industry. (or an industry multiple being applied).
An enginnering firm may have a capitalisation rate of 25% ROI (or an ebit multiple of 4.0 times maintainable earnings) but what if this multiple is strengthening or weakening, how would you personally know if you are a business migrant? You need an expert on your side, someone who knows the market intimately, knows of all the latest sales and of all the emerging risk factors.
Determining the value of a business is a job for a professional valuer. An unassisted purchaser cannot hope to determine the value of a business on his own. He needs help and that help can be found at business valuer network.